When the seller won’t agree to the amount you think the RV park is worth, is there anything you can do but simply walk away? In this RV Park Mastery podcast, we’re going to examine six different methods you can use to make deals happen even when the seller is originally reluctant to give you the price you need.
Episode 74: The Options When You And The Seller Can’t Agree On A Price Transcript
So you're trying to buy an RV Park. You can't come to quite the agreement with the seller on exactly what that price should be. What do you do? Just walk away? Well, this is Frank Rolfe, the RV Park Mastery Podcast. We're gonna be talking about the options when you and the seller can't agree on a price 'cause there is more than just the walk-away concept. So the first thing is just that. You can just keep offering your price to the seller over and over again, hoping that somehow or rather, they will accept it, and you can get the price that you hoped for. Now, the problem is that can take a long time, and it might take forever. So we've had cases where the seller after several attempts says, "You know what? It really hasn't sold yet. Okay, I'll go with that lower price." There are other people we've talked to for years and still have never reached a deal, but that is always one option is just to be persistent and keep offering the same thing over and over.
Another option would be to tie it up and then try and renegotiate it. We've done that many times. Now, what are you really doing there? Well, you're going ahead and giving the seller the price that they are demanding even though you know it's not the right price with the expectation that during due diligence and financing, truth will prevail and the seller will be forced to go ahead and accept the fact the property isn't worth what he thought. This typically comes in the form of the appraisal or it could be just in the form of lender pushback and say, "No, I don't think it's worth that." And then of course, you may find items as you do due diligence, which open the door to renegotiation, errors the seller made on such things as property tax or insurance and then cases where the revenue isn't exactly what he claimed.
Now, we have learned over the years that if you're going to tie it up and then renegotiate it, you typically cannot do better than a 20% reduction. So if your goal is to do more than a 20% reduction, then it's probably not going to work. In that case, you gotta go to step one, which is just to keep offering that same price over and over till they break down and take it. Because once you've tied it up and tried to renegotiate and you fail, you really can't tie it up a second time. You basically have lost the deal. Now, another option you have, if you can't agree on the price, is to try to work backwards to that price using seller financing. Now we have long advocated seller financing. My first RV Park was seller financed, so was Dave's. So we are big believers in the power of seller carry.
Now, how do you get them to carry paper? Well, for one thing you can do, you can steer them to it by offering them two price, one a cash price which is lower and number two, a seller carry price which is higher. So if you steer them in that manner, most people will opt for the higher price if they can. And then you have to know how to structure your seller note. Most sellers are not going to carry the paper for longer than a 10-year term, but they will allow for 30-year amortization. Typical interest rate is going to be a little lower than what the bank gets but somewhere in line with what they can get right now in the form of a CD or treasury, which is roughly around 4%. So if you're a seller and you have the ability to get your money in the same interest rate you would have it placed in with a treasury or CD yet get the higher price, well, it's a no-brainer that carrying makes a lot of sense, and that's why so many sellers will adopt carry if you press them for it.
Now, even on a difficult deal where you can't hit the price, you can work backwards there through seller financing by lowering the interest rate or by lowering the down payment because again, all RV Park buyers are typically looking for a cash-on-cash return. And the less cash you have in, well, then the higher cash-on-cash-return you would have. In fact, if you can do a zero down deal as Dave and I have done 12 times, that return is basically infinite because you have nothing in the deal. So even a dollar you get back would deem to be infinite. Now another option you have if you cannot agree to a price is to do a master lease with option. That's a construction few people talk much about. We've done it many times. What you do with a master lease with option is this, you tell the seller, "Look, I can't make the numbers work in this current format, but let me take the reins. Let me become the quarterback, and I'll get the NOI up enough that I can get financing for it and I can hit that price."
Now, typically, if we're gonna do that, the way it's gonna have to work is this a RV Park that does not have good marketing right now, no online marketing. So as a result, what you're gonna be doing is you're gonna be bringing it to the new world of the Internet and as a result boost, bolstering that NOI significantly as you get more people to come on in. Now, that's a good master lease with option construction. Now, typically a master lease with option is about a three to five-year term, and as a result, you have to either buy it at the end of that three to five-year term or walk from it. You also have the ability to go ahead and get it done early if you prefer that. So the master lease with option is a good construction. Now, typically sellers who do it are gonna have to be a little desperate. It's kind of scary to let someone else take over the helm of the ship where they have always done it themselves internally.
So it's born of a little bit of desperation. It's also very important to have good bonding with the seller so they trust you. Otherwise, you're not going to go engage in a master lease with option situation. Now, the option price is typically what their dream price would be. You're not gonna get a price reduction there. But in this case, what you're doing is you're going to go forward and try and make it worth that price through your own ingenious strategy. That is the key component. And you can do that. You can make that happen if you will, in fact, work it and put forth the effort mom and pop have not done in the form of properly marketing to get people to come on in, better customer service, and also typically better social media reviews. One note on that, if you're gonna do a master lease with option construction, you've gotta make sure that you have a very, very well-written contract. Do not do something on the back of a napkin.
Don't do something in the absence of an attorney because what's going to happen is your master lease with option is gonna turn into a mess when you go to exercise the option. What will happen is they'll say, "Well, I'm not gonna sell to you that price anymore. I drove by the RV Park. It's now basically full and looking great, so I think it's worth more." And they are in fact, correct. So every time we've done a master lease with option, then invariably that's how it ends. There's some kind of problem at the very end of the movie in which they don't wanna sell, and we've had to force them to then sell to honor the commitment they already made. Because everyone, it's just consumer behavior that when you own something that you can tell it's worth more than what you agreed to sell it for, that you then don't wanna sell it. You wanna negotiate for a higher price, and that's always what happens.
So if you wanna take the master lease with option, what you're gonna have to do is you're gonna have an attorney write that document. And tell the attorney on the front end, "Now, I'm gonna suspect, when I get done improving the operations of this property, they're going to not want to convey it to me. And make sure, 100% sure, it's written in a form in which you can force them to do that." Now, another option, and this one, I'm not a big fan of it, but people have done it. And that's to buy a partial interest in the RV Park. So you wanna buy the whole thing at a certain price. They won't sell at that price, so you say, "Well, hey, what if I buy a portion of it? Would you then maybe sell at a lower price because you're still keeping half or more?" And some sellers will say, "Oh, I like this idea. I'll sell a partial interest, that means I still own my RV Park, and yet I'm gonna bring in new blood, someone who really wants to push all the things that I'm lacking anymore and lost my energy. So as they grow the business, I will benefit as well."
Now, the problem when you do a partial interest is you have something that's extremely illiquid because very few people will buy a partial interest and no bank is gonna make a loan on a partial interest. You'll have to own majority, and then mom and pop will say, "No, I won't give anyone the majority. You have to keep the minority 'cause it's m RV Park." So they are very, very complicated transactions to do. Also it would have to be an RV Park that's worth a whole lot to make you buy in a partial interest really worth your while. But the big hurdle again is liquidity because now you're stuck in partnership with someone you don't know at all. All you knew about them was they weren't very good with their RV Park before, and what will you do if you wanna make changes to how it operates and they refuse or they don't like that? They can not vote you because they have a greater stake.
The final option, and this is what most RV Park owners do today when the price the seller wants does not exactly match what we wanna pay, is to often just take a leap of faith that you can get the job done, that you're gonna go ahead and overpay a bit. You're gonna do what we call stretching to get the deal done, and then once you stretch to do it, you have to make good on that promise you made to yourself and get out there and really work the marketing, get that occupancy up, get rents up, make it a very streamlined, well-running machine to make it then worth that little bit more that you overpaid. Now, there's many, many tales of people who have made fortunes out of buying RV Parks that were poorly ran and buying them at a price that was unsubstantiated when they bought it with the expectation, which they then successfully did, of increasing the net income.
But remember, if you wanna do that stretching, that leap of faith maneuver, you still have to get a bank loan. And that's the key problem because the lender is not going to support a leap of faith because they get no upside, they get no stake, they get no extra money if you do well with your RV Park. All they have is downside if you don't make the payment. So that's where a lot of those deals fall apart. Now, if you can find a lender who understands the narrative and supports your story, that's great. That would work all day long if they really wanna be a teammate with you in your adventure, but that's a real struggle. And once again, you're not gonna be able to pay a huge percentage over what it truly is worth to do that stretch. The bottom line to it is there are many alternatives when you and the seller reach an impasse to try and bridge that gap. Don't give up when someone doesn't agree to your price. There are other options. This is Frank Rolfe, the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.